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The Mortgage Graveyard
Failed, closed and a c q u i r e d mortgage-related entities.

2 IL Banks Fail

Strategic Capital Bank, Citizens National Bank closed

May 26, 2009

By staff

Late Friday, federal and state banking regulators seized two Illinois institutions. In all, last week's bank failures are expected to cost the Federal Deposit Insurance Corporation more than $5 billion.

The Illinois Department of Financial and Professional Regulation's Division of Banking closed Strategic Capital Bank late Friday, according to the Federal Deposit Insurance Corporation -- which was named receiver.

Strategic was established in 1999. Just 34 people were employed at the bank as of Dec. 31, 2008. The Champaign, Ill.-based institution had $471 million in deposits as of May 26 -- all of which will be acquired by Midland States Bank.

Assets stood at $537 million -- including $20 million in residential loans, $83 million in commercial mortgages and $79 million in construction-and-land-development loans as of Dec. 31, 2008. Midland will acquire around $536 million of the assets with the FDIC sharing in losses on $420 million.

The FDIC, which issued cease-and-desist orders against Strategic earlier this year and late last year, said it expects to lose $173 million on Strategic's failure -- the 35th so far this year.

Citizens National Bank was closed by the Office of the Comptroller of the Currency, also on Friday, an OCC statement said.

"The OCC acted after finding that the bank had experienced substantial dissipation of assets and earnings due to unsafe and unsound practices," the statement said. "The OCC also found that the bank has incurred losses that have depleted most of its capital, and there is no reasonable prospect that the bank will become adequately capitalized without Federal assistance."

Macomb, Ill.-based Citizens was founded in 1890 and reported 72 employees as of Dec. 31, 2008.

The FDIC, which was appointed receiver, said that Morton Community Bank assumed $400 million in Citizen's deposits as of May 13, while another $200 million in brokered deposits were not part of the deal.

Morton also acquired $240 million of the failed bank's $437 million in assets, of which the FDIC agreed to share in losses on $200 million. At the end of last year, one- to four-unit loans outstanding were $45 million, while commercial mortgages were $78 million and construction-and-land-development loans were $20 million.

"The FDIC estimates that the cost to the Deposit Insurance Fund will be $106 million," a press release said.

Citizens was the 36th failure of an FDIC-insured institution this year. So far during 2009, has tracked the closing of 74 mortgage-related companies.

Including the failure of BankUnited, FSB, on Thursday, the FDIC's fund is expected to be depleted by $5.2 billion from last week's seizures.

Capmark Financial Group Inc., which last month warned about its ability to continue as a going concern, announced Thursday that the closing date of a $1.5 billion loan facility had been extended as it works with "lenders to prepare definitive agreements."

Several mortgage-related companies that were reported as ailing in the summer of 2007 subsequently closed down.

In August 2007, Anworth Mortgage Asset Corp. disclosed that it was unlikely subsidiary Belvedere Trust Mortgage Corp. would be able to repay its loans. An announcement in December 2007 confirmed that operations were discontinued at the subsidiary.

KKR Financial Holdings LLC, which in August 2007 sold $5.1 billion in residential mortgages and said it no longer intended to invest in residential real estate assets, reported in a May 7 filing with the Securities and Exchange Commission that it had "substantially completed its plan to exit its residential mortgage investment operations" as of June 30, 2008.

In August 2007, Mercantile Mortgage Co. halted branch field operations but hoped to emerge again as an active originator. The company, however, apparently didn't make it -- with its Web site having disappeared and its name having been removed from a roster of mortgage broker licensees from Ohio's Division of Financial Institutions.

People's Choice Home Loan Inc., which filed for bankruptcy reorganization in July 2007, eventually liquidated, according to a Debtor's Joint Liquidating Plan of Reorganization filed in the U.S. Bankruptcy Court for the Central District of California Santa Ana Division in March 2008.

Another company that failed to emerge from bankruptcy was Premier Mortgage Funding Inc., which filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court of the Middle District of Florida in July 2007. At the time, the company's chief executive officer Jerry Cugno told, "We will be successful again.

But the company's Florida license expired in August 2008 and its Web site is dead.

In re People's Choice Home Loan Inc., et al., Debtors.
Case No.: SA-07-10765-RK (U.S. Bankruptcy Court for the Central District of California Santa Ana Division)

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